Commentary on Australian and world events from a socialist and democratic viewpoint

Category: Environment

The market price of Bitcoin and other cryptocurrencies is plummeting, having dropped by 10 per cent just today, and 50 per cent over the past month. The bubble that reached maximum expansion a year ago is gradually deflating.

The good news is that a lower Bitcoin price makes the energy-wasting process of Bitcoin mining unprofitable for many, so lots of miners are turning off their servers. Most estimates of the marginal cost of mining are around $4500 per coin, but the market price has just fallen to $3500.

That situation won’t last long. Every couple of weeks (more precisely, every 2016 blocks) Bitcoin adjusts the difficulty of the pointless algorithm used to mine coins, so as to ensure a steady flow of around one every 10 minutes. As mining effort has declined, the difficulty is reduced, which means less electricity wasted per Bitcoin.[1]

The rapidity with which Bitcoin prices are falling give some hope that the entire disastrous episode will soon be over. If the current rate of decline (50 per cent per month) is maintained, Bitcoins will be worth less than dollar coins in a year’s time, and their impact on electricity demand will be negligible. That’s equivalent to taking a small country like New Zealand off-grid.

In this context, it doesn’t matter whether Bitcoin miners are using renewable energy or coal. The opportunity cost of the electricity they use is the coal-fired electricity that would otherwise be displaced by renewables.

fn1. As shown here, mining difficulty leveled out in September and started declining in November. Since electricity consumption depends on both mining difficulty and the speed of the machines being used, which is increasing over time, the energy wasted on Bitcoin probably started declining modestly as soon as mining difficulty leveled out.

A week ago, I was speaking at a Royal Society of NSW Forum on the topic “Getting climate policy back on track” when the news came through that Adani had announced a start to the Carmichael mine “before Christmas”, funded from the company’s own reserves. With Christmas now less than three weeks away, where do things stand?

It’s evident that, as with previous construction starts, this one won’t be on a large scale. Adani has just posted its first job opening for a year, on the portal it set up with great fanfare in mid-2017. It’s for a Senior Mine Planning Engineer a “newly changed and developed role reporting to the Head Mine Operations”. Given that Adani has announced a proposal that’s radically different from the one they were running last year, you might have expected that a Senior Mine Planning Engineer would have been on the job for some time, heading a substantial team. Still, it’s likely that some kind of activity will take place, even if it’s only symbolic.

The big question is how Labor will respond, since it’s highly likely to be in office by the time any serious mining activity starts. So far the signs have been mixed. Queensland Premier Palaszczuk has said, correctly, that this is effectively a new proposal, and will need new approvals. On the other hand, Penny Wong has suggested that, once contracts are signed, the dreaded spectre of “sovereign risk” will mean that the government cannot intervene. This is a bogus argument in the specific case of Adani, but the whole idea needs to be challenged. Governments routinely break their promises to voters, and corporations regularly renege on their commitments to governments, but, in the era of neoliberalism, promises made by governments to corporation have come to be held sacred.

Adani Mining announced today that its scaled-down Carmichael mine project would proceed without any external funding. Before considering reactions, it’s important to recall causes for scepticism.

First, Adani has repeatedly announced the imminent start of the project, while doing little or nothing. It is possible that this announcement will be followed by months, or even years, of “pre-construction activity” during which the project is kept alive with minimal expenditure from Adani.

Second, the economics of the project are as bad as they have ever been. Thermal coal prices have declined in recent months, especially following China’s decision to freeze imports. If China gets through the winter without significant problems, it is likely that the decline will be permanent. Even if it isn’t, the discount on low-quality coal =of the kind found in the Galilee Basin is rising all the time.

Third, the failure to secure any external finance for the project is significant. Most of the big lenders have now sworn off thermal coal altogether, but if there were real money to be made here, some second-tier institution would probably have gone for it.

So, it would make sense to wait for a while to see what develops. Still, we need to be prepared for a decision on whether Australia is going to back a future for coal, and destruction for the global environment or a moratorium on new mines. Labor under Bill Shorten has been surprisingly brave on issues like tax, and our Trumpist government is in a complete mess. A strong stand would be a huge step towards a better future.

Adani has just announced another scaled down version of its proposed Carmichael mine, bringing the initial capital cost down to $2 billion, and the estimated initial output to 10-15 million tonnes a year. As usual, the claim is that financing will close in the near future.

Unfortunately, it is possible that this time the project will go ahead. The Indian Supreme Court has reopened the possibility that Adani may be able to pass on to customers the costs of imported coal for its Mundra power station.

That doesn’t change the fact that the project is economically unsustainable in the long run, as well as being an environmental disaster (though not as big a disaster as in its original version). But the cost is now low enough that, if Gautam Adani is willing to put in enough of his money, he may find lenders willing to finance the rest.

At this point, it looks as if Labor will have to get off the fence, on which has perched for so long. The world needs to stop opening new coal mines, and Carmichael is a good place to start.

The paradoxes of Adani are mirrored in the global coal market. Despite a small increase in 2017, global coal production is below its 2013 peak. Yet prices have recovered strongly, yielding big profits to existing miners and offering a seemingly tempting prospect for new mines.

What’s going on here? One possible explanation is that Yancoal and Glencore, who produce the majority of Australia’s high-grade coal, have engaged in successful cartel behavior. Another is that the premium reflects shifts in demand (with China and India increasingly rejecting high ash coal, while Japan continues to demand high grade coal) and supply (few new mines are opening, and this has a bigger effect on the smaller market for high grade coal).

Whatever the explanation, most analysts agree that it is more likely to be resolved by a decline in the price of high-grade coal rather than an increase in the price of low-grade coal.

Where does Adani fit into all this. Most of the discussion I’ve found focuses on the premium between 6000kcal/kg and 5500 kcal/kg. Coal extracted from the Carmichael mine would be much lower quality, below 5000 kcal/kg.

The recent announcement by Adani that it will halve the costs of its rail line to the proposed Carmichael coalmine by building a shorter, narrow-gauge line raises an obvious question: if such a massive cost-saving is feasible, why didn’t Adani go that way in the first place?

Amid the recent upsurge of leadership speculation, this time affecting the government, a crucial observation on the so-called National Energy Guarantee seems to have been missed.

No one thinks the NEG is a good policy: its selling point is the claim that it could resolve, once and for all, the political fight over climate and energy policy. After the last few days, that claim has fallen in a heap. A few days after claiming the endorsement of his party room for the previous version of the NEG, Turnbull is doing an emergency rewrite of the NEG to stave off a rebellion and perhaps a challenge to his job.

This half-baked compromise, if it works at all, won’t resolve anything. There’s no target for emissions reductions, which might help get legislation through Parliament, but leaves the most important single issue for later. The already messy pricing system is to be complicated further by unspecified policies to reduce prices directly. And the denialists are still pushing for a publicly funded coal-fired power station.

Supposing this chimera somehow struggles into existence, it will last as long as the political stars with which it is aligned. If Turnbull loses to the right of his own party, the whole thing will be dumped in favor of policies driven by culture war concerns rather than economics, let alone climate. If Labor wins, they will need to dump this mess and start again, effectively from scratch.

I have in my mind a picture of Turnbull, descending the steps of a plane and waving a peace of paper while he announces “Peace for our Time”. I guess that can’t literally happen since the relevant meetings will all take place in Canberra and tarmac photo-ops are confined to state visits these days. But I doubt that Turnbull’s deal will last as long as Chamberlain’s did.